Edward Houghton, Research Adviser — Human Capital and Metrics.
The news at the end of 2015 that Sports Direct had lost over £400m of stock market value due to concerns about the way the organisation treats the welfare of its workforce should come as a stark warning to the world of business. This highlights the importance of good people management and culture practices – not just for the sake of financial performance but also for the health and wellbeing of the workforce.
It seems that not a few month goes by without a governance or cultural issue rocking some of the biggest brands in the world; late in the summer of 2015, Volkswagen was shaken by an emissions-rigging scandal which involved the deception of US regulators by some of its workers regarding greenhouse gas emissions, and at the end of 2014 Tesco was hit by an accountancy scandal, thought to be the cause of poor corporate governance and ineffective leadership. The financial effect of such events are clear. For Tesco, 2015 has seen the average price of its shares tumble — hovering around 160p, it is their lowest level since October 1997. Volkswagen’s brand and financial position is also bleak and following a similar trajectory. The commonality between these events? They’re inextricably linked to people and culture.
Built of the very tone and purpose of the organisation, culture is one of those concepts that whilst incredibly hard to conceptualise and measure, it is surprisingly very easy to talk about. Most employees will be able to describe the culture of where they work; whether it’s one based around trust and autonomy, freedom to act and accountability, or one of central structures of command and control.
We all know when we are working in a team or an organisation with a good culture. It’s both the cause and result of the way employees interact with each other and crucially their work, and is interwoven with the health, wellbeing and performance of individuals. For this reason, it should be the top of the agenda for every senior leader and member of the board: one of the top things keeping them awake at night (or, if set correctly, helping them to sleep more soundly).
It is from the very top of business that culture is set, and leaders should be encouraged to understand the importance of effective cultures, and learn good practice techniques for building positive working environments.
Together with a number of partners, the Financial Reporting Council (FRC) is working to build a ‘culture-coalition’ across the business community that will champion effective board action on culture.
The breadth of expertise and interest in this topic shows how important it is now for organisations to really take notice of the very way in which they drive performance through their people. Until businesses take account this, there are likely to be many more governance issues which come to the fore and cause significant damage, not just to the pockets of shareholders, but also the health of employees.